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Understanding Old Age Pension in Ireland

According to the statistics 50% of Irish people will have to try and survive on the Old Age Pension, now called the State Pension.

Let us assume you are aged in your 30’s or 40’s. Imagine you are now aged 65 and your employer has just thanked you for your years of service and congratulated you on reaching your employer’s mandatory retirement age of 65. Discount your mortgage payments as you will likely own your home outright at this stage. You now have 3 years without income before you receive the Old Age Pension at age 68. At age 68, if you have enough contributions made over your lifetime, you will qualify for the State Pension which is currently €230 per week, or €11,960 per annum. In addition to increasing the age to 68 the government recently reduced the pension benefits to those who do not qualify in full for the State Pension by narrowing the qualification bands. In addition, it is likely that the pension age will be increased further as life expectancy continues to rise.

Compare the Old Age Pension to your current earnings. What will you have to give up in order to survive? This is a question which 50% of the working population who have no pension provision will have to face in the future, unless they act now to ensure that they are not totally reliant on the State Pension.

As low as the pension is now, it will only get worse in the future as increased life expectancy leads to a greater number of people of pensionable age with a smaller percentage of the population still at work and paying for the State Pension. It is highly unlikely that the State Pension will keep pace with inflation and some commentators believe that it may be removed entirely at some stage in the future.

There is no easy answer to this problem. People have to start saving at a younger age or be prepared to work long past the age of 68, which may not be possible due to health issues or difficulty in securing employment in later life.

At Pearce Financial Planning we help people to address this issue and help them to live their life without the fear of running out of money.

Old Age Pension in Ireland

What is Lifestyle Financial Planning?

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Lifestyle Financial Planning has become popular in the UK over the last number of years, mainly because of the changes brought about by the banning of commission for any investment products. With similar changes being mooted for Ireland shortly, more Financial Advisers will switch to this new model of financial advice.

Before the arrival of Financial Advisers, life insurance and pensions were sold by insurance salespeople, with very little attention paid to the suitability of the product for the end customer. This led to some serious cases of miss-selling and damaged the reputation of the life assurance industry in general.

About 25 years ago, in an attempt to clean up its reputation, the industry introduced the “fact find”. This document ensured that the insurance salesperson had to obtain a minimum amount of information about the customer before they could sell them any product and that product had to be suitable to their needs in accordance with the facts gathered in the fact find. Although this went some way to improving the process, it didn’t stop the sell at all costs practices that were rife, brought about by the commission only system.

Lifestyle Financial Planning goes much further than the fact find. As well as gathering all the hard facts about someone’s finances, it also finds out what is important to the client, what type of life the client wishes to achieve in the medium term and after they stop working. Lifestyle Financial Planning will help the client to establish life goals and assist in achieving those goals, as opposed to finding a gap and selling a product to fill that gap.

A Lifestyle Financial Planner should carry out an in depth audit of your current financial situation, then, based on that information, produce a lifelong cash flow forecast. My experience is that this helps the client to understand its importance and empowers them to make the right decisions so as to ensure they can live the life they desire without the fear of running out of money. Some people find that they can actually enjoy a few more luxuries, whilst others may have to take action to improve their situation.

Once all this has been done, recommendations are made as to how best to arrange the client’s finances and investments in order to achieve their goals. This should be done on a fee basis only without charging commission to ensure unbiased advice is given. Once implemented, the service will include regular reviews. These reviews are essential as circumstances will change over time, as will your plans, and it is essential to continuously adapt the plan to any such changes.

Are you in need of an independent financial advisor dublin? Why not get in touch with Joe Pearce,

What is the difference between Investment Advisors or Financial Advisers and Planners?

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When considering who can best assist you to achieve everyone’s ultimate goal of financial independence, who gives better value for money, Investment Advisors or Financial Planners.

A recent article in the Huffington Post was quite certain in its opinion on this subject, namely that you are better off seeking holistic financial planning advice from a Financial Advise

They stated that an Investment Advisor normally only gave investment advice without taking into account the client’s circumstances and future financial and life goals. By contract, a Financial Adviser who gives comprehensive lifestyle financial planning advice concentrates on a wide number of areas which are important factors in the client’s medium and long term financial plans towards achieving financial independence, specifically:

Financial Analysis including a report on your current financial situation and forecasting of your cash flow into the future.

Budgeting to assist you in achieving your financial goals

Advice for SME owners in relation to their employee benefits

Advice for SME owners on the most tax-efficient exit from their business

Investment advice and planning

Tax planning

Retirement planning

Estate planning

This analysis by the Huffington Post is accurate. Investment Advisors will normally ask you a few questions about your investment goals, will calculate your risk tolerance and then recommend a portfolio from a number of off the shelf portfolios which they normally recommend to their clients.

A good Financial Advisor who practises Comprehensive Lifestyle Financial Planning will indeed give you investment advice, but it will only be a small part of their service, which is to give you holistic financial advice based on you, your circumstances and your life goals with a view to you achieving total financial independence, this being able to live the life you want without the fear of running out of money. As an existing client, the Financial Adviser, who should be fee based will transact your investment needs for a fee which is only a fraction of that paid to commission based investment advisors.

A recent online recruitment advert in Prospects, described the role as:

“Financial advisers provide clients with advice on financial matters, making recommendations on ways to best utilize their money. The role involves researching the marketplace and advising clients on products and services available, ensuring they are aware of and understand those that best meet their needs, and then securing a sale.

Advisers may specialize in particular products, depending on their clients, e.g. selling employee pension schemes to companies or offering mortgage, pension or investment advice to private clients. Others are generalists, offering advice to clients in all of these areas, plus savings plans and insurance. financial advisor dublin ireland

In order to give financial advice, advisers must have professional qualifications and follow strict financial industry rules.

Financial advisers may also be known as financial planners or wealth managers.” financial advisor Dublin Ireland

Notice the comment about securing a sale. This is based on the long-held industry system of paying Financial Advisers through commission on sales, which means that they have to make a sale to make their living.

There are three main different types of financial advisers: financial advisor dublin ireland

Tied Insurance Agents

Tied agents represent only one provider and can only advise on and recommend products provided by that provider. They are normally paid on a commission only basis and will therefore be under pressure to make a sale. As they can only recommend products of one provider, tied agents cannot give best advice to clients and the products they sell in many cases are not most suited to the client or best value. A tied agent does not act on behalf of the client, but acts on behalf of the company he/she represents, and that company has to take full and unconditional responsibility for the actions of the tied agent.

An agent who has no more than 4 agencies with different providers is known as an insurance agent.financial advisor dublin ireland

The agent will act on behalf of the client to obtain the best terms for the client with the limited number of companies with whom the agent holds agencies.

There are two instances where the agent is not acting for the client, but on behalf of the provider, as follows:

Where the client gives the agent payment in respect of an accepted proposal, this payment is treated as having been received by the provider.

When the agent completes an application form on behalf of a client or helps the client to complete the application form, the provider is responsible for any errors and omissions.

Insurance Broker

An intermediary holding at least five agencies with different providers is an insurance broker.

The insurance broker acts on behalf of the client to obtain the best terms from the companies he/she represents.

If an insurance broker receives a premium from a client and does not pass it on, the broker in this one instance is regarded as acting on behalf of the provider and the provider must stand over it as having received it.

Recently, PIBA (Professional Insurance Brokers Association) introduced a new term, namely Financial Broker, in order to raise public awareness of Financial Brokers as experts in financial matters.

Life Assurance Made Simple - Life Insurance Ireland

What Does Life Assurance Do?

Life insurance guarantees that in the event of your death, a lump sum will be payable to your loved ones.

Not sure if you need Life Assurance?

Ask yourself this question: “Will someone in my life suffer financially if I die?”

If the answer is yes, you probably need life insurance.

The correct amount of life assurance can:

Provide money to pay for burial or other final expenses

Ensure your loved ones are able to sustain their current lifestyle and stay in their home

Cover your debts, including your mortgage

Provide an income for your family

Cover the cost of childcare

Cover the cost of education for your children

Can reduce inheritance tax liability

What Are The Different Types Of Life Assurance?

There are many different life insurance products and finding the right product for you depends on your personal and family circumstances, including your debts, the age of your children and your long-term goals for your family. Most life insurance products fit into two categories – term life and whole of life.

Term Life Assurance

Term life assurance is generally arranged for a set amount of cover for a pre-determined number of years. It can be used to give cover for a loan such as a mortgage which will be paid off over an agreed period. It can also provide income to provide for your children until they reach independence.

Term life assurance only pays a benefit if you die during the specified period of time – After the term expires there’s no guarantee that you will qualify for a new policy – If you do qualify, the premium will probably be higher because of your older age, or it might cost extra if you have had any medical issues in the meantime. It is possible to guarantee the extension of your cover without any medical underwriting by paying a small extra premium. Life Insurance Ireland

Whole of Life Assurance

Whole of life assurance guarantees you cover up to age 99, provided you continue to pay the premiums, which are reviewed on a regular basis. This was a popular product in the 90’s and was sold on the basis that part of the premium was invested which would keep future premiums down.

They did not live up to their promise and in most cases, the investment returns were poor, resulting in the premiums being revised upwards, making it a very expensive form of life assurance.

Pension Term Life Assurance

Pension Term Life Assurance provides your family with a lump sum payment, if you should die before you retire. Under current legislation, tax relief is available at the rate of income tax you pay.

The cover lasts until you reach retirement age, which will normally be your 65th birthday, subject to revenue limits and conditions.

How Do I Buy Life Assurance?

Engage a Financial Broker who will guide you through the process.

A reputable Financial Broker will discuss your circumstances with you and advise you as to how much cover you should have. This will depend on your individual needs and also your available budget. The Financial Broker will then search for the best value cover for you and make his/her recommendations.

An application form will be completed and sent to the life assurance company, who will underwrite the application. Based on medical evidence or the amount of cover required, you might have to attend for a medical.

Upon acceptance, the life assurance company will then issue the policy, giving you peace of mind.